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Alcatel-Lucent Message Board

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  • aaastefano aaastefano Oct 16, 2012 2:00 PM Flag

    The Choice ALU Has

    u're all right but the problem is that in order to win contracts nowadays vs. the Chinese is not only a question of low prices but financing and Alcatel can not finance its customers to purchase their products.

    The US got right when they warned US carriers not to use Chinese manufacturers as this is the how they get business...the problem is that India also warned against the Chinese manufacturers but at the end they buy from Chinese anyway as they get the financing.

    Alcatel don't need to be bought out but simply recapitalized through a monster debt issue (cost of debt is lower that cost of equity) or a loan covering their contracts.

    If they are able to do this they would be able to win any contract at conditions which are not prohibitive but need to have a serious management in place that tackle the margin side of the equation like a surgeon.

    This is what eventually France (and the US) will do, as I doubt that it will pass the antitrust even if the aquirer was Cisco. All the players would rather see Alcatel going bust in order to take pieces here and there and see another competitor exiting the market.

    I'm quite sure that Alcatel is working on a debt issue currently and if they are able to secure that you could expect its price to quadruple in a matter of days.

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    • Stefano,

      You are making some good points; but, let me deal with those one-by-one:

      1. Recapitalization of debt is just a reduction in current debt payment or its deferment; but not in its reduction. Since the financier is going to make sure that he makes money and also seeks guarantee of return of his money, the actual debt gets fattened; meaning the liability is increased. Yes, the quarterly and annual bottom line numbers look better; but, institutional analysts and investors account for the real liability and do not get fooled by artificially raised bottom-line numbers. In my view, instituional investors understand that game and won't be lured by such gimmicks. Also, I don't htink that can be done for pension payment except other debt. Besides, ALU doesn't need that because it generates enough free cash through revenue ($6B in hand now) and the other debt is much less than that. Of course, a recapitalization scheme is preferred by top executives of the company who do not want to put their jobs in the hands of the acquirer or merger partner's bosses!

      2. Financing purchases certainly helps increase sales volume; but not necessarily increase the long-term bottom line because too otften these credits have to be written off! Just like we had to write off billions in such deals we had with Egypt and Pakistan! These international beggars are always looking for such avenues, only to rob you! Since ALU has a global business, this is risky way to increase business. Yes, it can do so for doing business in the U.S.A. for outfits that are not likely to seek bankruptcy. Chinese companies do that through their govt which wants to buy political favor in return for forgiving such loans! For U.S. or Western European companies to do that is pretty risky. (Ask Citi Bank and RBC which extended such loans to crooked global clients!)

      3. Regarding competition wanting ALU disintegrated into pieces is not liklely in this case because the competition is chiefly Huawei, ZTE, Samsung,Cisco and Ericscson to name a few - all in differnt countries. Yes, it would be possible if all were U.S. companies or ALU was privately held!

      4. Shrinking the company through spinoffs is possible and perhaps may be a preferred route. But, I am not sure if that's simple for this company to do and if Verwaayen and company are looking to do so.

      Thanks for your response.

      • 1 Reply to mruyog
      • Dear mruyog,

        Sorry for my delay in the response but here the answers (in capital) to your questions in addition to an heads-up on what I think about the Goldman story today at the end of this reply

        1. Recapitalization of debt is just a reduction in current debt payment or its deferment; but not in its reduction (I AGREE). Since the financier is going to make sure that he makes money and also seeks guarantee of return of his money, the actual debt gets fattened; meaning the liability is increased (NOT NECESARRILY IF SOMETHING IS GIVEN AS A GUARANTEE AND TODAY'S NEWS ABOUT GOLDMAN CONFIRMS THAT - I FURTHER THINK THAT BEHIND GOLDMAN YOU MIGHT HAVE THE FRENCH AND US THAT ARE ALSO GIVING SOME SORT OF GUARANTEES AS YOU CAN'T LET SEE SO MANY AND IMPORTANTS PATENTS IN CERTAIN HANDS... ) . Yes, the quarterly and annual bottom line numbers look better; but, institutional analysts and investors account for the real liability and do not get fooled by artificially raised bottom-line numbers. In my view, instituional investors understand that game and won't be lured by such gimmicks (TRUE AS LIABILITIES ARE INCREASED BUT ASSETS AS WELL). Also, I don't htink that can be done for pension payment except other debt. Besides, ALU doesn't need that because it generates enough free cash through revenue ($6B in hand now) and the other debt is much less than that. Of course, a recapitalization scheme is preferred by top executives of the company who do not want to put their jobs in the hands of the acquirer or merger partner's bosses! (I RATHER PREFER TO SEE BEN KEEPING HIS JOB AS HE GOT ALL THE PROBLEMS AND RATHER KNOW HOW TO TURN IT AROUND - I WOULD ALTHOUGH PUT SOMEONE NEXT TO HIM TO CHECK FOR ALL FUTURE CONTRACTS)

        2. Financing purchases certainly helps increase sales volume; but not necessarily increase the long-term bottom line because too otften these credits have to be written off! (THIS IS TRUE IN A MARKET WHERE THERE IS OVERCAPACITY AND LITTLE BARRIERS TO ENTRY - I DON'T THINK IT APPLIES TO ALU) Just like we had to write off billions in such deals we had with Egypt and Pakistan! These international beggars are always looking for such avenues, only to rob you! Since ALU has a global business, this is risky way to increase business. Yes, it can do so for doing business in the U.S.A. for outfits that are not likely to seek bankruptcy. Chinese companies do that through their govt which wants to buy political favor in return for forgiving such loans! For U.S. or Western European companies to do that is pretty risky. (Ask Citi Bank and RBC which extended such loans to crooked global clients!)

        IN TODAY'S ENVIRONMENT THE PRICE IS AN IMPORTANT FACTOR BUT MORE IMPORTANT IS THE FINANCING - I THINK THAT WITH NEW FINANCING ALCATEL COULD DOUBLE THE PRICE OF THEIR PRODUCTS AND THEY WOULD ALL BUY IT AS THEY WOULD HAVE FINANCING (TELCOS ALSO LOOKING TO MATCH THEIR CAPEX WITH REVENUES AND DEPRECIATION OF ASSETS)

        3. Regarding competition wanting ALU disintegrated into pieces is not liklely in this case because the competition is chiefly Huawei, ZTE, Samsung,Cisco and Ericscson to name a few - all in differnt countries. Yes, it would be possible if all were U.S. companies or ALU was privately held! (THIS IS EXACTLY WHAT I HAVE SAID: THEY WOULD ALL BE HAPPY NOT TO SEE ALCATEL AROUND ANYMORE...)

        4. Shrinking the company through spinoffs is possible and perhaps may be a preferred route. But, I am not sure if that's simple for this company to do and if Verwaayen and company are looking to do so. (I THINK IT'S VERY DIFFICULT AS WELL)

        EVERYBODY AGAINST GOLDMAN BUT I THINK GOLDMAND KNOW HOW TO DO BUSINESS - WHY BNP, SOCGEN, BARCLAYS, DEUTSCHE AND ALL THE OTHERS JUST REFUSED THE FINANCING? I AM SURE ALCATEL HAVE BEEN TRYING THAT FOR THE LAST TWO YEARS...

        GOLDMAN'S INTEREST LIES IN ALCATEL'S ABILITY TO GENERATE CASH-FLOWS THROUGH THEIR PATENTS AND THROUGH DEPLOYEMENT OF THEIR PRODUCTS (I THINK THAT THEY MIGHT BE MORE INTERESTED TO SEE THE COMPANY GOING BUST IN ORDER TO GET WHAT THEY WANT ON THE CHEAP RATHER TO SEE THEM FLOURISH)

        BUT THIS IS NOT TO COUNT WITHOUT FRENCH AND US STATE INTERVENTION (I THINK GS ALREADY GOT STATE GUARANTEES ANYWAY) AS THEY SIMPLY CAN NOT GIVE THE KEY OF A NUCLEAR BOMB IN THE HANDS OF GS ALONE...

        THEY BETTER TURN THIS AROUND AS I WROTE IN MY 1ST MESSAGE (I REPEAT THEY CAN SELL PRODUCTS AT DOUBLE THE PRICE WITH THE RIGHT FINANCING GIVEN TO THE BUYERS) AND AS A FEE GS WOULD MAKE ON THE TWO SIDES: 1) FEES FROM FINANCING 2) FEES FROM GOVERNEMENTS AND ADDITIONAL UNTANGIBLES WHICH CAN'T BE QUANTIFIED

        BOTTOM-LINE: I PERSONALLY THINK THAT A HUGE DEBT RECAPITALIZAZION (OR EVEN A SMALL CONVERTIBLE ISSUE WHICH GS MIGHT TAKE IN FULL IN ORDER TO GET ADDITIONAL UPSIDE) NOW SEEMS REALITY AND I RATHER WOULD BE VERY LONG ON THE STOCK AND OUTSTANDING DEBT.

        IF WELL EXECUTED IT COULD BE ONE OF THE BEST TURNAROUNDS OF THE LAST DECADE

    • Don't forget that ALU has a core router that's taking market share from Cisco! Plus look at all the awards that ALU received just recently! Remember, a few years back Ford stock went to a dollar per share and look where they are now!

      Sentiment: Strong Buy

      • 1 Reply to jessten1
      • Agreed that the router business is the one gem this company has - profitable, growing, taking market share. However, its value is not being realized by shareholders because it is tied up in a company that is losing money and burning cash. It just feeds someone else's losses. So, if no one wants to pay its worth as part of a purchase of the complete company, it should be spun off, as recommended by Sanford Bernstein, where it will most likely trade at a price significantly higher than the price of ALU's stock today.

        As for the Ford comparison, this is always possible. Things could fall neatly in line for ALU. However, there is also the GM scenario, where shareholders get nothing. So, while ALU may survive and one day thrive by itself, the risk of it falling is far too great to continue as it is. That is why a sale to a company with financial strength such that we know it will survive makes sense. An offer, in whole or in parts, of $3 I believe is conservative. So look at Nokia. May it survive and again one day prosper? It might. Then again, it might not. So if Nokia could be sold for 3x its current price or $8.40 would that be the right move for management to make on behalf of its shareholders? Of course it would be.

 
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